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OneCoin scam: US Department of Justice arrests proponents, clamps down on cryptocurrency frauds

In yet another blow to the cryptocurrency ecosystem, US Authorities announced the arrest of the people behind OneCoin, a multi-billion dollar pyramid scheme which involved the disposal of fraudulent cryptocurrency.

According to the US Department of Justice, Geoffrey S Berman, the US Attorney for the Southern District of New York, announced the arrest of Konstantin Ignatov on March 6, 2019, at the Los Angeles International Airport.

Ignatov was arrested on charges of illegal cryptocurrency fraud and conspiracy, which involved an illicit cryptocurrency named OneCoin. Ignatov’s sister and OneCoin’s Founder Ruja Ignatova was also indicted for money laundering, and wire and securities fraud.

According to the official indictment, OneCoin, a Bulgaria-based company founded in 2014, was still in operation. The company gave its users incentives to get more investors to buy OneCoin cryptocurrency; a scheme very similar to a multi-level pyramid marketing scheme. It reportedly had over three million members worldwide, despite the cryptocurrency not having any functional blockchain or decentralized public ledger.

Victims of the pyramid scheme wired investment capital into OneCoin-authorized bank accounts to avail OneCoin packages. The investigation also revealed that OneCoin Ltd. generated a staggering 3.53 billion euros in sales revenue between the fourth quarter of 2014 and the third quarter of 2016. Over the period, the profits earned were about 2.232 billion euros.

Prosecutors alleged that the accused deceived their investors by promising that OneCoin’s value will surge from half a euro to almost 30 euros by January 2019. However, email exchanges between the siblings have indicated that they planned to “take the money and run and blame someone else for this”.

Geoffrey S Berman stated,

“As alleged, these defendants created a multi billion-dollar ‘cryptocurrency’ company based completely on lies and deceit. They promised big returns and minimal risk, but, as alleged, this business was a pyramid scheme based on smoke and mirrors more than zeroes and ones. Investors were victimized while the defendants got rich. Our Office has a history of successfully targeting, arresting, and convicting financial fraudsters, and this case is no different.”

Mark Scott, an ally of the OneCoin project, was indicted last summer; he now faces a maximum of 20 years in prison. Ignatov is also facing 20 years in prison, while Ignatova faces multiple charges adding up to a maximum of 85 years in prison, if found guilty.